Biden Administration's Green Book Proposes Significant Changes to Tax Regime
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Biden Administration’s Green
Book Proposes Significant
Changes to Tax Regime
06 / 28 / 21
This was originally published as a Skadden client alert on June 15, 2021.
If you have any questions regarding
the matters discussed in this On May 28, 2021, the Treasury Department released the General Explanations of the
memorandum, please contact the Administration’s Fiscal Year 2022 Revenue Proposals (sometimes called the Green Book)
attorneys listed on the last page or to accompany President Joe Biden’s proposed budget for FY 2022. If enacted, the Green
call your regular Skadden contact. Book proposals would significantly increase tax burdens on corporate and individual
taxpayers and make sweeping changes to the international tax regime that was overhauled
in 2017 by the Tax Cuts and Jobs Act (TCJA). The proposals also would significantly
impact planning for transfers of wealth by treating transfers by gift and at death as
realization events for income tax purposes. Also, in line with the Biden administration’s
policy goals related to renewable energy, the Green Book sets forth numerous proposals
to expand tax benefits favoring clean energy and rescind tax incentives currently available
with respect to fossil fuels.
Treasury officials have described the Green Book as a “conceptual” document providing
a starting point for discussions with Congress. Prior to the enactment of any new tax
legislation, the Treasury Department may build upon the Green Book by modifying
or abandoning some of these proposals or offering new ones (including, for example,
modifying or repealing Section 199A). Below, we provide a brief description of certain
noteworthy proposals in the Green Book (including commentary from Treasury offi-
cials) and offer our observations.
Corporations
Increase Corporate Income Tax Rate: As anticipated, the Biden administration would
increase the corporate income tax rate from 21% to 28%, in line with Obama-era
proposals but well under the 35% rate in place prior to the TCJA. By far the largest
revenue-raiser in the Green Book, this would increase the tax cost of engaging in taxable
corporate transactions and increase the economic value of tax attributes that are tied to
the corporate rate, such as net operating losses (NOLs) and disallowed interest carryfor-
wards. This new rate is not retroactive to 2021, and the Green Book does not describe
This memorandum is provided by any anti-abuse rules related to the timing of income and other tax items. Taxpayers may
Skadden, Arps, Slate, Meagher & Flom
wish to consider strategies to accelerate recognition of income and built-in gains into
LLP and its affiliates for educational and
informational purposes only and is not
2021 and defer otherwise deductible costs and expenses into 2022 or beyond.
intended and should not be construed
Introduce 15% Minimum Tax on Book Income: Corporate taxpayers with worldwide
as legal advice. This memorandum is
considered advertising under applicable
book income in excess of $2 billion would have to compute a “book minimum tax” by
state laws. subtracting their regular corporate income tax liability from a book tentative minimum
tax (BTMT). The BTMT would be equal to 15% of worldwide pre-tax book income
minus (1) book NOL deductions, (2) general business credits (including research and
One Manhattan West development, clean energy and housing tax credits) and (3) foreign tax credits (FTCs).
New York, NY 10001
212.735.3000 Book income tax credits (BITCs) generated by positive book income tax liability could be
carried forward to offset regular tax in future years to the extent regular tax exceeds BTMT
in those future years. Like the carryforward mechanism for the former corporate alter-
native minimum tax, these BITCs could mitigate the harm of uneven income realization,
though firms could suffer costs related to the time value of money (a dollar today is worth
more than a dollar tomorrow), and it is not guaranteed that firms will be able to perfectly
“smooth out” their tax liability through BITCs (if FTCs expire unused, for example).
A primary reason for significant book-tax disparities for certain large public companies
is their use of deductible stock-based compensation. This proposal could have especially
powerful effects on such companies, as well as on large capital-intensive businesses that
Follow us for more thought leadership: / skadden.com © Skadden, Arps, Slate, Meagher & Flom LLP. All rights reserved.Biden Administration’s Green
Book Proposes Significant
Changes to Tax Regime
use bonus depreciation and immediate expensing to reduce or 1. reducing the Section 250 deduction from 50% to 25%, result-
eliminate their regular corporate income tax liability. ing in a GILTI rate of 21% (i.e., 75% of the proposed 28%
corporate rate);
This proposal is vague in many respects. It is unclear, for example,
(1) how book NOLs are computed; (2) whether there is a limited 2. eliminating the 10% exemption for qualified business asset
carryforward period for book NOLs and BITCs; (3) whether investment (QBAI);
book NOLs and BITCs would be subject to limitations like those 3. calculating the Section 904 FTC limitations for GILTI
in Sections 382 and 383; (4) whether other country-by-country income (the “GILTI basket”) and foreign branch income
proposals or existing FTC limitations would limit the availability (the “branch basket”) on a country-by-country basis;
of certain FTCs for this purpose; and (5) the applicability of other 4. applying a similar country-by-country approach to tested
concepts when tax treatment and accounting treatment differ. losses;
New Limitation on Interest Deductions: In general, each U.S. 5. repealing the “high-tax exception” for both GILTI and
corporation or group of U.S. corporations (a “subgroup”) that Subpart F; and
is part of a financial reporting group (generally, a multinational 6. eliminating the “tested income exception” for foreign oil
group that prepares consolidated financial statements, including and gas extraction income.
one with a non-U.S. parent) would be required to limit its interest
deductions to (1) its “proportionate share” of the entire group’s The elimination of the QBAI exemption and the high-tax excep-
interest expense, determined based on income, or (2) if it fails to tion would push the U.S. further away from a territorial system
substantiate its proportionate share or so elects, its interest income of international taxation and toward a worldwide system in
plus 10% of its adjusted taxable income (ATI), as defined under which a business’s income is taxed by the country in which that
Section 163(j). Disallowed interest expense and excess limitation business is located.
could be carried forward indefinitely. The proposed limitation
would apply concurrently with Section 163(j) — whichever limit The proposal is intended to encourage the enactment of a multi-
is lower is the limit that would apply. lateral global minimum tax regime negotiated with the OECD
(“Pillar Two”) by taking into account (on a country-by-country
Treasury officials have confirmed that this proposal is not basis) any taxes paid by a U.S. corporation’s non-U.S. parent
intended to apply to U.S.-parented financial reporting groups under an “income inclusion rule,” providing relief for “sandwich”
consisting solely of the parent and its CFCs. In that respect, this structures in which a non-U.S. parent owns a U.S. subsidiary
proposal resembles older proposals from the Obama and George with CFCs. It is important to note that the proposed 21% GILTI
W. Bush administrations. rate is higher than the 15% global minimum rate the Biden
administration has indicated it could accept in OECD nego-
This proposal would not apply to financial services entities (FSEs), tiations. Moreover, there is no indication that Treasury would
though it is not clear how this exclusion would apply in practice. reduce or eliminate the 20% “haircut” for GILTI basket FTCs. As
The Green Book would grant Treasury broad authority to fulfill the a result of these provisions, the effective foreign tax rate that one
purposes of this proposal, including providing a (new) definition would have to pay to avoid GILTI could be as high as 26.25%.
of “financial services entity.” The Green Book also states that FSEs This rate is substantially higher than any global minimum tax
“are excluded from the financial reporting group for purposes of rate likely to result from OECD negotiations.
applying the proposal to other members of the financial reporting
group,” which suggests that even if the FSE rules of Section 904 The country-by-country approach for GILTI and branch basket
are incorporated (in whole or in part), the financial services group FTCs would be a sea change in international taxation, eliminat-
(FSG) rules will not be — that is, an FSG will not be entirely ing most planning opportunities that rely on a “cross-crediting”
excluded from this rule, but an entity that does not qualify as an strategy. Firms with an international footprint may be compelled
FSE on a stand-alone basis will be subject to the rules. to make allocations to dozens of GILTI and branch baskets in
addition to their baskets for general and passive income. The
International country-by-country approach would be especially onerous in
Major Changes to GILTI: The Biden administration proposes the GILTI context; unlike the branch basket, the GILTI basket
substantial changes to the global intangible low-tax income does not allow carryforwards or carrybacks of excess cred-
(GILTI) regime that was created by the TCJA, including: its. Though this was not explicitly stated in the Green Book,
Treasury officials have indicated that they intend to use this
2 Skadden, Arps, Slate, Meagher & Flom LLP and AffiliatesBiden Administration’s Green
Book Proposes Significant
Changes to Tax Regime
country-by-country approach to sequester tested losses in their company. This switch may be flipped even where there is signifi-
countries of origination, preventing multinational firms from cantly less than 50% U.S. shareholder continuity if the various
offsetting tested income arising in one country with a tested loss exceptions, add-backs and other adjustments in the existing regu-
arising in another. Fortunately for taxpayers, there is no indica- lations are retained in their current form. Strikingly, it appears
tion that cross-crediting will be constrained for 2021, allowing possible that the alternative “managed and controlled” test could
for tax planning this year in anticipation of any changes. apply even where there is zero U.S. shareholder continuity, as in
a debt-financed all-cash acquisition of a larger U.S. corporation
Expand Section 265 Disallowance of Deductions: This proposal by a smaller non-U.S. corporation that is managed and controlled
would extend Section 265 — which disallows deductions allocable in the United States. It is unclear whether such a test would be
to certain tax-exempt income — to deductions allocable to a class consistent with current income tax treaties.
of foreign income that is taxed at a preferential rate or not at all,
including the Section 250 deduction for a portion of GILTI income These new rules could also change the definition of “domestic
and the Section 245A deduction for certain dividends. This would entity acquisition” to apply on a business-line-by-business-
replace Section 904(b)(4), which treats deductions as if they were line basis. For example, the new Section 7874 could ensnare
disallowed solely for purposes of the FTC calculation. a non-U.S. corporation’s acquisition of substantially all of the
assets of a trade or business of a U.S. corporation (as opposed
The Green Book does not indicate how deductions would be to substantially all of the U.S. corporation’s total assets, as is
allocated to the income targeted by this proposal. If done in required under current law). The term “trade or business” could
accordance with existing allocation regulations, the disallowance be construed very broadly, creating substantial uncertainty
of these deductions would be particularly onerous for taxpay- and high costs for taxpayers. For example, this proposal would
ers with significant interest expense and high-tax CFCs with appear to apply the inversion rules to any carve-out or asset
substantial GILTI income. It is also unclear how this proposal sale by a U.S. corporation of a division or even product line to a
would interact with existing rules for allocating interest for non-U.S. corporation. The proposal also would appear to prevent
foreign tax credit purposes under existing regulations. a U.S. corporation from spinning off (even taxably) one of its
businesses into a non-U.S. corporation, except in the very rare
In a footnote, the Green Book states that this proposal is not case where the substantial business activities test is satisfied.
intended to create any inferences regarding current law, including
whether Section 265 currently disallows such deductions. Though There does not appear to be any grandfathering for deals that
the mere mention of this controversial position could signal have signed but not yet closed. If this proposal becomes law,
Treasury’s interest in considering it as a regulatory matter, the companies wishing to invert will face serious pressure to close
substance of this footnote suggests that any regulations attempting any outstanding deals.
to implement the proposal are likely to be purely prospective.
Repeal FDII: The Green Book would repeal the deduction
Tighten Inversion Rules: U.S. corporations and certain part- available to U.S. corporations on their foreign-derived intangible
nerships that redomicile outside the United States in a merger income (FDII). The Green Book states that “resulting revenue
or acquisition with a non-U.S. corporation would be treated as will be used to encourage R&D” but provides no concrete details.
U.S. corporations if more than 50% of the final entity is held by
former shareholders of the initial entity. Even if continuity is Replace BEAT With SHIELD: The Base Erosion and Anti-abuse
50% or less, the final entity will be treated as domestic if (1) the Tax (BEAT) introduced by the TCJA would be replaced by the
domestic corporation’s fair market value is greater than the foreign Stopping Harmful Inversions and Ending Low-tax Developments
acquiring corporation’s fair market value immediately before the (SHIELD) rule, which denies deductions for certain payments
combination; (2) the combined entity is managed and controlled made to members of the same financial reporting group in
in the U.S., and (3) the “expanded affiliated group” does not have “low-taxed” jurisdictions starting in 2023. SHIELD would apply
substantial business activities in its new jurisdiction. to the cost of goods sold (COGS) by remedially disallowing
“other deductions (including unrelated party deductions)” instead
This is a major shift in the operation of Section 7874, which of payments for COGS itself.
imposes special rules on inversions in which initial sharehold-
ers acquire 60-79% of the final company but does not alter the SHIELD is meant to work in tandem with the proposed GILTI
non-U.S. status of that final company. Instead, the new Section rules and a new OECD regime for taxing multinational compa-
7874 would act as an on/off switch, imposing domestic status nies; the definition of a “low-taxed” jurisdiction is determined
on each company produced by international mergers as long as in reference to Pillar Two of the OECD plan or, if there is no
shareholders of the U.S. entity own more than 50% of that final agreement on Pillar Two, the GILTI rate (i.e., 21% under the
3 Skadden, Arps, Slate, Meagher & Flom LLP and AffiliatesBiden Administration’s Green
Book Proposes Significant
Changes to Tax Regime
administration’s proposal). The effective tax rate for each financial noted, those proposals would limit the utility of cross-crediting
group member also would be derived from Pillar Two principles, strategies, which would make the transactions targeted by this
which would require the disaggregation of financial statements on proposal less appealing in general. For example, the sale of a
a jurisdiction-by-jurisdiction basis. Unlike Pillar Two, the Biden CFC with a Section 338 election in a country-by-country FTC
administration’s proposal disallows deductions in their entirety, regime would be much less likely to give rise to a Section 951A
rather than merely to the extent that a low-taxed jurisdiction’s tax inclusion offset by excess credits.
rate is lower than a global minimum rate. Treasury officials have
indicated that this is an intentional feature of the plan designed Individuals
to encourage countries to adopt Pillar Two.
Increase Top Individual Rate: The top rate for individual taxpay-
In some respects, SHIELD is far broader in application than ers would increase from 37% to 39.6%. The number of people
BEAT, applying to any multinational group with global consoli- subject to this top rate also would increase due to the application
dated revenue greater than $500 million, even if the group has a of the top rate to income over $452,700 ($509,300 for married
relatively small presence in the United States. In other respects, taxpayers filing jointly), as compared to $523,601 ($628,301
SHIELD is narrower than BEAT. For example, Treasury officials for married taxpayers filing jointly) in 2021. Notably, the Green
have made it clear that SHIELD should not apply to U.S.-based Book deviates from President Biden’s campaign proposals by
multinational corporations with respect to their CFCs, provided omitting any revival of the Pease limitation or other policies that
that other international tax proposals are adopted. Treasury would reduce the value of itemized deductions.
would have broad authority under this proposal to create excep-
Tax Capital Gains as Ordinary Income: Currently taxed at prefer-
tions for such firms, as well as non-U.S.-parented multinational
ential rates, long-term capital gains and qualified dividend income
corporations in countries that have adopted Pillar Two, invest-
would be taxed at ordinary income rates for taxpayers whose
ment funds, pension funds, international organizations and other
income exceeds $1 million ($500,000 for married taxpayers filing
nonprofit entities.
separately), indexed for inflation after 2022. While this proposal
Introduce On-Shoring and Off-Shoring Incentives: The Green was previously announced during President Biden’s campaign and
Book provides a business credit for “reducing or eliminating widely expected, the Treasury Department surprised observers by
a trade or business (or line of business) currently conducted imposing this rate increase on “gains required to be recognized
outside the United States and starting up, expanding, or other- after the date of announcement,” which is widely believed to
wise moving the same trade or business to a location within the mean April 28, 2021 (the date of the announcement of the Amer-
United States, to the extent this results in an increase in U.S. ican Rescue Plan). It remains to be seen whether the retroactive
jobs.” It also denies deductions for expenses related to moving effective date will survive the legislative process, though there
jobs out of the United States. These proposals lack key details, is reason to believe that Congress may not defer to Treasury’s
including (1) specific requirements for attaining the business recommendation. In any event, full repeal or partial rollback
credit, (2) how to measure a business activity’s impact on U.S. of the rate preference for long-term capital gains and qualified
jobs, and (3) how these incentives avoid violating any WTO and dividend income would have profound ramifications for individ-
state aid rules. ual taxpayers, compounding the incentives to defer realization
events for appreciated investments, increasing the economic value
Expand Scope of Section 338(h)(16): This proposal would apply of capital losses and capital loss carryforwards, and bringing
the principles of Section 338(h)(16) to U.S. shareholders who dividend-bearing equity investments closer to tax parity with
recognize gain in connection with a change of entity classification interest-bearing debt investments.
(for example, via a “check-the-box” election) or on a sale of a
“hybrid” entity treated as a corporation for non-U.S. tax purposes Tax Carried Interests as Ordinary Income: Taxpayers with taxable
but as a partnership or disregarded entity for U.S. tax purposes. income over $400,000 who perform services for an “investment
This would cause the source and character of any item resulting partnership” and hold a profits interest in such partnership (an
from such transactions to be determined as if the seller sold or “investment services partnership interest”) must pay tax at
exchanged stock for FTC purposes. This would generally conform ordinary rates and self-employment taxes on their allocable share
the treatment of a “check and sell” transaction with the treatment of income from that interest and on gains from the sale of that
of a sale of corporate stock subject to a Section 338 election. interest. A partnership is an investment partnership if (1) substan-
tially all of its assets are investment-type assets (certain securities,
The effect of this proposal might be limited if the coun- real estate, interests in partnerships, commodities, cash or cash
try-by-country proposals described above are enacted. As equivalents, or derivative contracts with respect to those assets),
4 Skadden, Arps, Slate, Meagher & Flom LLP and AffiliatesBiden Administration’s Green
Book Proposes Significant
Changes to Tax Regime
and (2) over half of the partnership’s contributed capital is from intended to have such a broad impact. It therefore seems safe to
partners in whose hands the interests constitute property not held assume that the application of this proposal to partnerships would
in connection with a trade or business. be significantly limited or omitted altogether in future legislation.
If the proposed repeal of the long-term capital gain preference is Imposing income tax on transfers of appreciated property to
enacted, the effect of the carried interest proposal is likely to be trusts and on distributions of appreciated property from trusts,
limited. It would only affect taxpayers who have annual income including many grantor trusts, could reduce the attractiveness of
between $400,000 and $1 million and earn at least some of that certain estate planning trusts, such as grantor retained annuity
income from a profits interest in a certain kind of partnership; few trusts (GRATs), and could have broad-ranging, perhaps unin-
people are likely to meet these criteria. In contrast, if the long-term tended, consequences for common trust transactions (e.g., the
capital gain preference survives, even in a limited form (for exam- distribution of property from a trust to a beneficiary or from one
ple, if the rate on capital gains increases to 30%), this proposal trust to another upon the happening of a particular event).
would have a significant impact on the tax treatment of carried
interests and optimal planning strategies for many partnerships. The value of property subject to tax on a gift, death or other
triggering event would generally be determined in accordance
Treat Transfers of Appreciated Property by Gift or at Death as with estate and gift tax valuation principles, except that a “partial
Realization Events: In what would be a transformational change interest” in property would have a value equal to its proportion-
to existing law, donors and decedents would generally recognize ate share of the fair market value of the entire property. It is not
gain on appreciated property transferred by gift or at death. The clear what property would be considered a “partial interest” for
tax on gain realized at death would be deductible on the decedent’s this purpose.
estate tax return. The extent to which losses could be recognized
is unclear, as is the extent to which a decedent’s loss carryovers Harmonize and Expand SECA and NIIT: The Green Book
could offset gains realized at death. proposes to subject all pass-through business income of taxpayers
with at least $400,000 of adjusted gross income to either the net
There are limited exclusions from gain recognition, including a investment income tax (NIIT) or Self-Employment Contributions
$1 million exclusion per donor or decedent and exclusions for Act (SECA) tax. To that end, the NIIT base would expand to
transfers to charities and U.S. spouses who take transferred prop- include income and gain from trades or businesses not otherwise
erty with a carryover basis. The payment of tax on illiquid assets subject to employment taxes. In addition, certain S corporation
transferred at death may be made based on a 15-year fixed-rate owners, limited partners and LLC members who provide services
payment plan, and the payment of tax attributable to certain and “materially participate” in their businesses would be subject
family-owned and operated businesses could be deferred until to the SECA tax on distributive shares above certain thresholds,
the business is sold or ceases to be family-owned and operated. subject to current-law exceptions for certain types of income
(e.g., rents, dividends, capital gains and certain retired partner
Transfers of property to and distributions of property from income). The Green Book defines “materially participate” to
irrevocable trusts, partnerships and other noncorporate entities mean regular, continuous and substantial involvement and says
also would be treated as recognition events. In addition, trusts, that this will “usually” mean at least 500 hours spent on the
partnerships and other noncorporate entities that own property business per year. This is similar to the “500 hour” standard in the
must recognize gain on unrealized appreciation of that property passive loss rules but not an explicit requirement. In short, these
if the property has not been subject to a recognition event in 90 provisions would make it very difficult for high-income taxpayers
years, starting January 1, 1940 — in other words, the first taxable who are partners in operating partnerships and provide services
events under this aspect of the proposal would happen to those partnerships to avoid paying at least 3.8% on top of their
on December 31, 2030. typical income tax rates.
Imposing tax on contributions of appreciated property to Limit Nonrecognition in Like-Kind Exchanges: The Green Book
partnerships and on distributions of appreciated property from would limit eligibility for “like-kind” exchanges under Section
partnerships goes far beyond the elimination of basis step-up 1031. Each taxpayer would be allowed to defer up to $500,000
at death and, taken at face value, would upend longstanding of gain each year ($1 million for married taxpayers filing jointly)
principles of partnership taxation, such as Sections 721 and 731. for like-kind exchanges of real property. Gains in excess of
Treasury officials have since indicated that this proposal was not that amount would be recognized in the taxable year when
5 Skadden, Arps, Slate, Meagher & Flom LLP and AffiliatesBiden Administration’s Green
Book Proposes Significant
Changes to Tax Regime
the taxpayer transfers the real property. These changes would order to currently benefit from the credit. The Green Book is
require REITs to distribute gains on property sales that could unclear as to whether the direct pay amount would be equal to
otherwise be deferred under Section 1031. Given timing rules the full amount of the credit otherwise claimable or would be
under Section 1031 and the proposal’s application to exchanges “hair cut” in a way similar to the proposed GREEN Act (H.R.
completed in taxable years beginning after December 31, 2021, 848), which generally would allow for a direct payment of 85%
this proposal may pick up many exchanges beginning in 2021. of the credit otherwise claimable. The Green Book also provides
that each tax incentive would be paired with “strong labor
Make Excess Loss Disallowance Permanent: The Section 461(l) standards.” The proposed GREEN Act includes a labor standards
disallowance of excess business losses for noncorporate taxpay- proposal, which may provide a blueprint for what the administra-
ers in taxable years would be made permanent. tion is considering.
Energy The effect of these proposals on clean energy financing and
investment transactions is unclear. The inclusion of the direct pay
The Green Book proposes to extend and expand several existing
option may make it possible for certain developers to forego tax
clean energy tax incentives. In particular, both the Section 48
equity investments in favor of self-funding or in favor of debt
investment tax credit for solar, offshore wind and other eligible
financing (including short-term bridge financing secured by the
property and the Section 45 production tax credit for wind and
future tax refund and/or long term project financing). However,
other qualified facilities would be extended in full for applicable
if the direct pay option includes a haircut, then tax equity might
property or facilities the construction of which begins after
be a more efficient choice, particularly if the developer cannot
2021 and before 2027, with the credit then phasing out linearly
otherwise currently utilize depreciation deductions from the
over the following five years based on the commencement of
project or interest deductions from the debt. A developer also
construction date for the applicable property or facility. Also,
would have to assess the availability and cost of debt financing.
the Section 48 investment tax credit would be expanded to
include stand-alone storage with a capacity exceeding 5 kWh. Perhaps notable is that the proposals in the Green Book do not
To enhance the Section 45Q carbon oxide sequestration credit, appear to align with the approach taken in Sen. Ron Wyden’s
the Green Book would extend the credit’s commencement of recently proposed Clean Energy For America Act (S. 1288). That
construction deadline by five years (to the end of 2030) and proposal seeks to consolidate existing tax incentives for clean
provide additional credits of $35 per metric ton of carbon oxide energy into technology-neutral benefits that would phase out
captured from hard-to-abate industrial carbon oxide capture based on reductions in annual greenhouse gas emissions in the
sectors that is disposed of in secure geological storage and, for United States instead of time periods or dollar amounts. Given
direct air capture products, an additional $70 per metric ton for that significant divergence, and other recent public statements
qualified carbon oxide disposed of in secure geological storage. from policymakers about federal support for infrastructure, it is
difficult to gauge the likelihood that these Green Book proposals
The Green Book also proposes to authorize an additional $10
in favor of clean energy would be enacted.
billion of credits under Section 48C for investments in eligible
property used in a qualifying advanced energy manufacturing In addition to instituting or expanding these benefits for clean
project, which also would be expanded to include more eligible energy, the Green Book proposes repealing several existing
technologies, including energy storage and components, electric incentives available to companies in the fossil fuels industry.
grid modernization equipment, carbon oxide sequestration and In particular, the Biden administration would eliminate:
energy conservation technologies. The previously-authorized
$2.3 billion of credits under Section 48C were all allocated by 1. credits for costs attributable to qualified enhanced oil recov-
the end of 2013. The Green Book also sets forth proposals for ery projects and oil and gas produced from marginal wells;
new clean energy incentives, including a credit equaling 30% of 2. full expensing of intangible drilling costs and exploration and
a taxpayer’s investment in qualifying electric power transmission development costs;
property placed in service after 2021 and before 2032, including 3. the deduction for costs paid for tertiary injectant used as part
overhead, submarine and underground transmission facilities of a tertiary recovery method;
meeting certain criteria.
4. the exception to passive loss limitations provided to working
Each of these credits would include a direct pay option, allowing interests in oil and natural gas properties;
the credit to be treated as equivalent to a payment of tax that 5. the use of percentage depletion with regard to oil and gas
would be refundable to the extent it exceeds taxes otherwise wells, as well as hard mineral fossil fuels;
payable. In that way, the taxpayer does not need tax capacity in
6 Skadden, Arps, Slate, Meagher & Flom LLP and AffiliatesBiden Administration’s Green
Book Proposes Significant
Changes to Tax Regime
6. the availability of two-year amortization of independent tax for crude oil derived from bitumen- and kerogen-rich
producers’ geological and geophysical expenditures rock; and
(increased to seven years); 10. accelerated amortization for air pollution control facilities.
7. the corporate income tax exception for publicly traded
partnerships with qualifying income and gains from activities The Biden administration also would reinstate and increase
relating to fossil fuels (effective for taxable years beginning excise taxes on (1) domestic crude oil and on imported petro-
after December 31, 2026); leum products; (2) listed hazardous chemicals; and (3) imported
substances that use as materials in their manufacture or produc-
8. taxation at long-term capital gains rates for royalties received tion one or more of the hazardous chemicals subject to the excise
on the disposition of coal or lignite; tax described in (2).
9. the exemption from the Oil Spill Liability Trust Fund excise
Contacts
Amy E. Heller Paul Schockett Thomas F. Wood
Partner / New York Partner / Washington, D.C. Partner / Washington, D.C.
212.735.3686 202.371.7815 202.371.7538
amy.heller@skadden.com paul.schockett@skadden.com thomas.wood@skadden.com
Victor Hollender Eric B. Sensenbrenner Cameron Williamson
Partner / New York Partner / Washington, D.C. Associate / New York
212.735.2825 202.371.7198 212.735.4157
victor.hollender@skadden.com eric.sensenbrenner@skadden.com cameron.williamson@skadden.com
Sarah Beth Rizzo Moshe Spinowitz
Partner / Chicago Partner / Boston
312.407.0674 617.573.4837
sarahbeth.rizzo@skadden.com moshe.spinowitz@skadden.com
7 Skadden, Arps, Slate, Meagher & Flom LLP and AffiliatesYou can also read
